Brexit could put more pressure on slipping Houston economy

Amit Bhandari, CEO of BioUrja Trading, right, talks with a trader. BioUrja Trading focuses on energy, a major part of Houston's commerce with Europe.

Amit Bhandari, CEO of BioUrja Trading, right, talks with a trader....

The United Kingdom's potential exit from the European Union could add more pressure on a Houston metropolitan economy that has already slowed dramatically under the weight of the worst energy bust in 30 years.

Economists and analysts say the impact on Houston would likely be small, but it comes at time when the local economy and two of its most vital industries - oil and manufacturing are struggling. If U.K. citizens vote Thursday to depart the 28-nation European Union analysts say, it would likely would unsettle financial markets, weaken the euro and British pound, and strengthen the dollar as investors sought safer havens in the U.S. economy.

A stronger dollar generally pushes oil prices downward and hurts U.S. manufacturers by making their products more expensive in foreign markets. Houston has lost one in five oil and gas jobs since crude prices began their slide two years ago, and one in 10 manufacturing jobs, according to U.S. Labor Department.

"A stronger dollar is bad for oil and bad for Houston," said Bill Gilmer, director of the Institute for Regional Forecasting at the University of Houston.

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The British vote has caught the attention of the world as political leaders, economists, executives and workers debate whether the U.K., Europe and the global economy would be better off if Britain leaves the EU. The U.K. is the second-largest economy in the bloc after Germany, and investors have followed the campaign closely.

Oil, for example, rallied Monday in New York after polls showed that voters were leaning toward remaining in the EU; prices, however, fell Tuesday, in part amid renewed concerns of a British exit, or Brexit. Crude fell 52 cents Tuesday in New York to settle at $48.85 a barrel.

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"We've never had this kind of thing happen," said Dominic Cellitti, Houston-based vice president and wealth adviser for Morgan Stanley. "Whenever you have something important like this, with tons of uncertainty and no definite direction, it can really dampen people's appetites for risk."

Were Great Britain to leave the European Union, it could discourage investment there, slowing the economy, lowering demand and weighing on oil prices just as they are beginning to rise after a long slump, said Sarah Ladislaw, director of the energy and national security program at the Washington think tank Center for Strategic and International Studies. A combination of growing supplies and weakening global demand led to the crash in prices, which plunged from more than $100 a barrel in June 2014 to $26 in February.

"In a down market, Houston is always very interested in anything that's going to affect the oil complex, and this could be a drag on rebalancing the market" between supply and demand, she said. "These demand signals matter because most people think it would take at least a two-year negotiation, and there's uncertainty about where it would end. "

Houston has strong connections to Europe; it is a major center of operations for European oil companies BP and Royal Dutch Shell, and the energy services provider Schlumberger. Europe accounted for about 20 percent of the exports that moved through the Port of Houston last year, according to WiserTrade, a Massachusetts nonprofit that tracks federal trade data.

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Houston companies shipped about $16 billion in merchandise in 2015; just over 10 percent of the European exports, about $1.7 billion, went to the United Kingdom.

Patrick Jankowski, an economist and senior vice president of research at the Greater Houston Partnership, said effects of a stronger dollar that might result from a British break with EU would be felt particularly by manufacturers that ship energy-related and other products overseas.

Houston also sells a lot of engineering services abroad, including designs to build oil platforms, processing terminals and pipelines, which could also be hurt by the stronger dollar.